CONSIDERATION CONSIDERATION

Analysis of
Definition of Consideration
(1) An act, i.e., doing of something. In this sense consideration is in an
affirmative form.
Example: A promises B to guarantee payment of price of the goods
which B sells on credit to C. Here selling of goods by B to C is consideration
for As promise.
(2) An abstinence or forbearance, i.e., abstaining or refraining from doing
something. In this sense consideration is in a negative form.
Example :A promises B not to file a suit against him if he pays him
Rs.500.The abstinence of A is the consideration for Bs payment.
(3) A return promise.
Example: A agrees to sell his horse to B for Rs 10,000. Here Bs
promise to pay the sum of Rs.10,000 is the consideration for A s promise
to sell the horse, and As promise to sell the horse is the consideration for
Bs promise to pay the sum of Rs.10,000.
Analysis of
Definition of Consideration
(1) An act, i.e., doing of something. In this sense consideration is in an
affirmative form.
Example: A promises B to guarantee payment of price of the goods
which B sells on credit to C. Here selling of goods by B to C is consideration
for As promise.
(2) An abstinence or forbearance, i.e., abstaining or refraining from doing
something. In this sense consideration is in a negative form.
Example :A promises B not to file a suit against him if he pays him
Rs.500.The abstinence of A is the consideration for Bs payment.
(3) A return promise.
Example: A agrees to sell his horse to B for Rs 10,000. Here Bs
promise to pay the sum of Rs.10,000 is the consideration for A s promise
to sell the horse, and As promise to sell the horse is the consideration for
Bs promise to pay the sum of Rs.10,000.
Legal Rules as to Consideration
1.It must move at the desire of the promisor.
2.It may move from the promisee or any other
person.
3.It may be an act, abstinence or a return
promise.
4.It may be past, present or future.
5.It need not be adequate.
6.It must be real and not illusory
7.It must be something which the promisor is not
already bound to do.
8.It must not be illegal, immoral or opposed to
public policy (Sec.23).
Legal Rules as to Consideration.
1.It must move at the desire of the
promisor:
An act constituting consideration must have
been done at the desire or request of the
promisor. If it is done at the instance of
a third party or without the desire of the
promisor, it will not be a good
consideration.
Example:A saves Bs goods from fire
without being asked to do so. A cannot
demand payment for his services.
Legal Rules as to Consideration.
2.It may move from the promisee or
any other person.
Consideration may move from promisee or
any other person, i.e., even a
stranger. This means that as long as
there is consideration for a promise
it is immaterial who has furnished it.
But the stranger to consideration
will be able to sue only if he is a
party to the contract.
Legal Rules as to Consideration.
2.It may move from the promisee or any other person
Example: An old lady, by a deed of gift,
made over certain property to her daughter D,
under the direction that she should pay her
aunt, P (sister of the old lady), a certain
sum of money annually. The same day D entered
in an agreement with P to pay her the agreed
amount. Later, D refused to pay the amount on
the plea that no consideration had moved from
P to D. Held, P was entitled to maintain suit
as consideration had moved from the old lady,
sister of P, to the daughter.
[Chinnayya vs.Ramayya(1882)]
Legal Rules as to Consideration.
3.It may be an act, abstinence or a a return promise.( The following are good
consideration for a contract)
(1)Forbearance to sue: If a person who could sue another
for the enforcement of a right agrees not to pursue his
claim, this constitutes a good consideration for the
promise by the other person. This results in a benefit
to the person not sued and a detriment to the person
who could sue.
Example: A borrows from B Rs.100 at 20 percent
p.a., and fails to pay the amount. When B is about to
file a suit, A agrees to pay a higher rate of interest.
B, as a result, does not file the suit. This
forbearance on the part of B to file a suit is a
sufficient consideration and B can enforce the promise
by A to pay the higher rate of interest.
Legal Rules as to Consideration.
3.It may be an act, abstinence or a return promise.
(2)Compromise of a disputed claim:
Compromise is a kind of forbearance. Originally ,
the claim should be reasonable and the person
claiming should honestly believe that it is a
valid claim. He should also act bona fide (in
good faith).
(3) Composition with creditors: A debtor who is
financially embarrassed may call a meeting of his
creditors and request them to accept a lesser
amount in satisfaction of their debt. If the
creditors agree to it, the agreement is binding
both upon the debtor and the creditors and this
amounts to a compromise of the claims of the
creditors.
Legal Rules as to Consideration.
4.It may be past, present or f uture.
(1)Past Consideration:
When consideration by a party for a present
promise was given in the past, i.e., before
the date of the promise, it is said to be
past consideration.
Example: A renders some service to B at
latters desire. After a month B promises
to compensate A for services rendered to
him. It is past consideration. A can
recover promised amount.
Legal Rules as to Consideration.
4.It may be past, present or future.
(2) Present or Executed Consideration:
When consideration is given simultaneously with
promise, i.e., at the time of promise, it is said
to be present consideration. In case sale, for
example, consideration is present or executed.
Example: A receives Rs. 50 in return for which
he promises to deliver certain goods to B. The
money A receives which he promises to deliver
certain goods to B. The money A receives is the
present consideration for the promise he makes to
deliver the goods.
Legal Rules as to Consideration.
4.It may be past, present or future.
(3) Future or executory consideration:
When consideration from one party to the other
is to pass subsequently to the making of the
contract, it is future or executory consideration.
Example:
D promises to deliver certain goods to P
after a week; P promises to pay the price
after a fortnight. The promise of D is
supported by the promise of P.
Consideration in this case is future or
executory.
Legal Rules as to Consideration.
5.It need not be adequate.
Consideration, as already explained, means
something in return.
This something in return need not necessarily be
equal to something given.
The law simply provides that a contract should be
supported by consideration.
So long as consideration exists, the Courts are not
concerned as to its adequacy, provided it is of
some value.
Continued
Ex:
A agrees to sell a horse worth rs.1,000 for
rs.10.
A denies that his consent to the agreement
was freely given.
The inadequacy of the consideration is a fact
which the Court should take into account in
considering whether or not As consent was
freely given.
Legal Rules as to Consideration.
6.It must be real, and not illusory.
Although consideration need not be adequate, it must be
real, competent and of some value in the eyes of the law.
There is no real consideration in the following cases:
(1) Physical Impossibility: A promises to put life in to Bs
dead wife and B should pay him Rs.500.As promise is
physically impossible of performance.
(2) Legal Impossibility: A owes Rs 100 to B. He promises to
pay Rs.20 to C, the servant of B, who in return promises
to discharge A from the debt. This is legally impossible
because C cannot give discharge for a debt due to B, his
master [Harvey vs. Gibbons, (1675)].
Legal Rules as to Consideration.
.6.It must be real, and not illusory
(3) Uncertain consideration:
A engages B for doing a certain work and promises to pay a
reasonable sum. There is no recognized method of
ascertaining the reasonable remuneration. The promise is
unenforceable as consideration is uncertain.
(4) Illusory consideration:
Two of the crew of a ship deserted it half way through a
voyage. The captain thereby promised to divide the salary
of the deserters among the rest of the crew if they worked
the vessel home. Held, they could not recover the amount
as the consideration was illusory. They were already under
an obligation to bring the vessel home.
Legal Rules as to Consideration.
7.It must be something which the promisor is not
already bound to do.
A promise to do what is already bound to do, either
by general law or under an existing contract, is not
a good consideration for a new promise, since it
adds nothing to the pre-existing legal or
contractual obligation.
Likewise a promise to perform a public duty by
a public servant is not a consideration.
Continued.
Ex:
(1) A promised to pay B, who had received summons
to appear at a trial in a civil suit, a certain sum being
a compensation for the loss of time during his
attendance.
Held, the promise was without consideration, for B
was under a duty imposed by law to appear and give
evidence.
(Collins v. Godefroy,(1831))
Continued.
Ex:
(2) There was a promise to pay to a lawyer an
additional sum if the suit was successful. Held, the
promise was void for want of consideration.
The lawyer was under a pre-existing contractual
obligation to render the best of his services under
the original contract.
But where a person being already under a legal or
contractual duty to do something undertakes to do
something than he is bound to do under the original
contract, this will be a good consideration for the
promise.
Legal Rules as to Consideration.
8.It must not be illegal, immoral or opposed to
public policy.
The consideration given for an agreement
must not be unlawful.
Where it is unlawful, the Court do not allow an
action on the agreement.
STRANGER TO CONTRACT STRANGER TO CONTRACT
It is a general rule of law that It is a general rule of law that only parties to a only parties to a
contract may sue and be sued on that contract. contract may sue and be sued on that contract.
This rule is known as the This rule is known as the Doctrine of privity of Doctrine of privity of
contract contract..
Privity of contract means relationship subsisting Privity of contract means relationship subsisting
between the parties who have entered in to between the parties who have entered in to
contractual obligations. contractual obligations.
It implies a mutuality of will and creates a legal bond It implies a mutuality of will and creates a legal bond
or tie between the parties to contract or tie between the parties to contract..
Two Consequences of the Two Consequences of the
Doctrine of Privity of Contract Doctrine of Privity of Contract
(1) A person who is not a party to a (1) A person who is not a party to a
contract cannot contract cannot sue upon sue upon it even it even
though the contract is for his benefit though the contract is for his benefit
and he provided consideration. and he provided consideration.
(2) A contract cannot confer (2) A contract cannot confer rights or rights or
impose obligation impose obligation arising under it on arising under it on
any person other than the parties to any person other than the parties to
it. it.
Thus, if there is a contract between A and B, Thus, if there is a contract between A and B,
C cannot enforce C cannot enforce. .
[Dunlop Pneumatic [Dunlop Pneumatic Tyre Tyre Co.Ltd Co.Ltd. Vs. Selfridge & . Vs. Selfridge & Co.Ltd Co.Ltd.,( 1915)] .,( 1915)]
Dunlop Pneumatic Dunlop Pneumatic Tyre Tyre Co.Ltd Co.Ltd. .
Vs. Vs.
Selfridge & Selfridge & Co.Ltd Co.Ltd.,(1915) .,(1915)
SS bought bought tyres tyres from the from the Dunlop Rubber Co Dunlop Rubber Co. and . and
sold them to sold them to PP, a sub , a sub--dealer, who agreed with dealer, who agreed with SS
not to sell below Dunlop not to sell below Dunlop s list price and to pay s list price and to pay
the the Dunlop Co Dunlop Co., 5 pounds as damages on every ., 5 pounds as damages on every
tyre tyre PP undersold. undersold.
PP sold two sold two tyres tyres at less than the list price and at less than the list price and
thereupon the thereupon the Dunlop Co Dunlop Co. sued him for the . sued him for the
breach. breach.
Held, the Held, the Dunlop Co Dunlop Co. could not maintain the . could not maintain the
suit as it was a stranger to the contract suit as it was a stranger to the contract. .
Exceptions to the rule Stranger to a contract cannot sue. .
1. 1.A trust or charge A trust or charge: A person (called beneficiary) in : A person (called beneficiary) in
whose favor a trust or other interest is created can whose favor a trust or other interest is created can
enforce it even though he is not a party to the enforce it even though he is not a party to the
contract contract..
Example: Example: A agrees to transfer certain properties to A agrees to transfer certain properties to
be held by T in trust for the benefit of B. B can be held by T in trust for the benefit of B. B can
enforce the agreement enforce the agreement
(i.e., the trust) even though he is not a party to the (i.e., the trust) even though he is not a party to the
agreement agreement
[M.K. [M.K. Rapai Rapai vs. John(1965)] vs. John(1965)]
Exceptions to the rule
stranger to a contract cannot sue.
2.Marriage settlement, partition or other family 2.Marriage settlement, partition or other family
arrangements arrangements..
Example: Example: Two brothers, on a partition of joint Two brothers, on a partition of joint
properties, agreed to invest in equal shares a properties, agreed to invest in equal shares a
certain sum of money for the maintenance of their certain sum of money for the maintenance of their
mother. mother.
Held Held, she was entitled to require her sons to make , she was entitled to require her sons to make
the investment the investment. .
[[Shuppu Shuppu Ammal Ammal vs. Subramaniam (1910) Madras High Court.] vs. Subramaniam (1910) Madras High Court.]
Exceptions to the rule stranger to a contract cannot sue. .
3.Acknowledgement or estoppel:
Where the promisor by his conduct, acknowledges or
otherwise constitutes himself as an agent of a third
party, a binding obligation is thereby incurred by him
towards the third party.
Example: A receives some money from T to be paid over to
P. A admits of this receipt to P. P can recover the amount
from A who shall be regarded as the agent of P.
Exceptions to the rule stranger to a contract cannot sue.
4. 4.Assignment of contract Assignment of contract : Where a benefit under a : Where a benefit under a
contract has been assigned, the assignee can enforce contract has been assigned, the assignee can enforce
the contract subject to all equities between the the contract subject to all equities between the
original parties to the contract original parties to the contract
e.g. the assignee of an insurance policy. e.g. the assignee of an insurance policy.
5. 5.Contracts entered Contracts entered in to through in to through an agent an agent::
The The principal can enforce the contracts entered in to principal can enforce the contracts entered in to
by his agent by his agent provided provided the agent acts within the the agent acts within the
scope of his authority and in the name of the scope of his authority and in the name of the
principal. principal.
A contract without consideration is void
-Exceptions
The general rule is The general rule is ex ex nudo nudo pacto pacto non non oritur oritur
actio actio,,
i.e., an agreement made without consideration is i.e., an agreement made without consideration is
void. void.
Sec.25 and 185 dealt with the exceptions to this Sec.25 and 185 dealt with the exceptions to this
rule. rule.
In such cases agreements are enforceable even In such cases agreements are enforceable even
though they are made without consideration. though they are made without consideration.
These cases are These cases are--- ---
A contract without consideration is void
-Exceptions.
1. 1.Love and Affection Love and Affection [Sec.25(1)]: [Sec.25(1)]:
Such agreement made without consideration Such agreement made without consideration
is valid if: is valid if:
((ii) It is expressed in writing ) It is expressed in writing
(ii) It is registered under the law (ii) It is registered under the law
(iii) It is made on account of love and (iii) It is made on account of love and
affection, and affection, and
(iv) It is between parties standing in a near (iv) It is between parties standing in a near
relation to each other. relation to each other.
Examples: Examples:
(a) (a) FF ,for natural love and affection, ,for natural love and affection,
promises to give his son, promises to give his son, SS, Rs.1,000. , Rs.1,000.FF
puts his promise to puts his promise to SS in writing and in writing and
registers it . There is a contract. registers it . There is a contract.
(b) (b) By a registered agreement, By a registered agreement, VV on account of on account of
natural love and affection for his natural love and affection for his
brother, brother, RR, promises to discharge his debt , promises to discharge his debt
to to BB. If . If VV does not discharge the debt, does not discharge the debt, RR
may discharge it and then sue may discharge it and then sue VV to recover to recover
the amount. the amount.
[[Venkataswamy Venkataswamy vs. vs. Ramaswamy Ramaswamy, (1903) , (1903)
A contract without consideration is void A contract without consideration is void
- -Exceptions Exceptions
2.Compensation for voluntary services.[ 2.Compensation for voluntary services.[Sec.25(2)] Sec.25(2)]
A promise to compensate, wholly or in part, a person who has A promise to compensate, wholly or in part, a person who has
already voluntarily done something for the promisor, is already voluntarily done something for the promisor, is
enforceable, even though without consideration. In simple enforceable, even though without consideration. In simple
words, a promise to pay for a past voluntary service is binding words, a promise to pay for a past voluntary service is binding. .
Examples Examples: (a) : (a) AA finds finds BB s purse and gives it to him. s purse and gives it to him. BB promises to promises to
give Rs. 50 .There is a contract. give Rs. 50 .There is a contract.
(b) (b) AA says to says to BB, , At the risk of your life you saved me from At the risk of your life you saved me from
a serious accident. I promise to pay you Rs.1,000. a serious accident. I promise to pay you Rs.1,000.There is a There is a
contract between contract between AA and and BB. .
Continued Continued
( (c) X, a neighbor helped putting down the fire
in Ys house. Afterwards , Y promised X to give
Rs.1000. This is a valid contract even though
the consideration did not move at the desire
of the promisor.
(d) X, supported Ys infant son. Y promised to
pay Xs expenses in so doing. This is a valid
contract. Here, X has done that act which Y
was legally bound to do.
A contract without consideration is void
-Exceptions
3.Promise to pay a time barred debt 3.Promise to pay a time barred debt::
Such promise with out consideration is valid if: Such promise with out consideration is valid if:
(1) It is made in writing (1) It is made in writing
(2) It is signed by the debtor or his agent, and (2) It is signed by the debtor or his agent, and
(3) It relates to a debt which could not be enforced by a creditor (3) It relates to a debt which could not be enforced by a creditor
because of limitation. because of limitation.
Note: According to the Law of limitation, a debt which remains Note: According to the Law of limitation, a debt which remains
unpaid or unclaimed for a period of 3 years becomes a time unpaid or unclaimed for a period of 3 years becomes a time
barred debt which is legally not recoverable. barred debt which is legally not recoverable.
A contract without consideration is void
-Exceptions
Example Example: D owes C Rs.1,000 but the debt : D owes C Rs.1,000 but the debt
is barred by the Limitation Act. D signs a is barred by the Limitation Act. D signs a
written promise o pay C Rs.500 on written promise o pay C Rs.500 on
account of the debt. This is a contract. account of the debt. This is a contract.
A contract without consideration is void
-Exceptions
4. 4.Completed Gift Completed Gift::
The rule The rule No consideration, no contract No consideration, no contract
does not apply to completed gifts.. does not apply to completed gifts..
e.g., X transferred some property to Y by a e.g., X transferred some property to Y by a
duly written and registered deed as a duly written and registered deed as a
gift. This is a valid contract even gift. This is a valid contract even
though no consideration. though no consideration.
`u `u !| !|
\ u-''-'u '- u--- - \ u-''-'u '- u--- -
-u -u -u -u
A contract without consideration is void
-Exceptions
-'-' v-':'u -'-' v-':'u: :
" :+'- u -u " :+'- u -u
:+'- +-- ++'+u-. '. :+'- +-- ++'+u-. '.
-u- '- :-''u '- ''+u -u- '- :-''u '- ''+u
| | l'-u- l'-u- \- \- -v' -v' '-++-'| '-++-'|
Important Cases Important Cases
Abdul Aziz, V. Abdul Aziz, V. Masum MasumAli: Ali:
The secretary of a Mosque, Committee filed a suit The secretary of a Mosque, Committee filed a suit
to enforce a promise which the promisor had made to enforce a promise which the promisor had made
to subscribe rs.500 to the re to subscribe rs.500 to the re- -building of a mosque. building of a mosque.
Held, the promise was not enforceable because Held, the promise was not enforceable because
there was no consideration in the sense of benefit , there was no consideration in the sense of benefit ,
and the secretary of the Committee to whom the and the secretary of the Committee to whom the
promise was made, suffered no detriment as nothing promise was made, suffered no detriment as nothing
had been done to carry out the repairs. Hence the had been done to carry out the repairs. Hence the
suit was dismissed. suit was dismissed.
Continued Continued
Kedar Kedar Nath Nath v. v. Gauri Gauri Mohamed: Mohamed:
The facts of this case were almost similar to those The facts of this case were almost similar to those
of the previous case, but the secretary in this case of the previous case, but the secretary in this case
incurred a liability on the strength of the promise. incurred a liability on the strength of the promise.
Held, the amount could be recovered, as the Held, the amount could be recovered, as the
promise resulted in a sufficient detriment to the promise resulted in a sufficient detriment to the
secretary. secretary.
In this case, the promise, even though it was In this case, the promise, even though it was
gratuitous, became enforceable because on the faith gratuitous, became enforceable because on the faith
of the promise the secretary had incurred a of the promise the secretary had incurred a
detriment. detriment.
Consideration: Practical Problems Consideration: Practical Problems
1. 1. A promises a subscription of A promises a subscription of
Rs.10,000 to the National Rs.10,000 to the National
Defense Fund. He does not pay. Defense Fund. He does not pay.
Is there any legal remedy Is there any legal remedy
against him? against him?
Answer: Case.1 Answer: Case.1
No. (Abdul Aziz vs. No. (Abdul Aziz vs. Masum MasumAli) Ali)
Case.2 Case.2
Can Can AA recover in the following cases? recover in the following cases?
(a) (a) BB gets in to difficulties while swimming in gets in to difficulties while swimming in
the river Ganga and cries for help. the river Ganga and cries for help. AA hears hears
the cry, removes his coat and dives in to the cry, removes his coat and dives in to
water and rescues water and rescues BB. . BB, who is full of , who is full of
gratitude, promises to pay gratitude, promises to pay AA Rs.200 but Rs.200 but
fails to do so. fails to do so.
Case.2 Case.2
(b) (b) BB writes to writes to AA, , At the risk of At the risk of
your own life, you saved me from your own life, you saved me from
a serious motor accident. I a serious motor accident. I
promise to pay you Rs.1,000 promise to pay you Rs.1,000..
Case.2 Case.2
(c) While B is away on holiday, a storm (c) While B is away on holiday, a storm
damages the roof of B damages the roof of B s house, and his s house, and his
neighbor, A, carries out the necessary neighbor, A, carries out the necessary
repairs. On his return, B promises to pay A repairs. On his return, B promises to pay A
Rs.200 for the work done and materials Rs.200 for the work done and materials
supplied. supplied.
Case.2 Case.2
(d) A finds B (d) A finds B s purse and gives s purse and gives
it to him. B promises A to give it to him. B promises A to give
him Rs.100 him Rs.100
Case.2 Case.2
(e) A, who is B (e) A, who is B s friend, seeks the help s friend, seeks the help
of a few persons in putting down a fire of a few persons in putting down a fire
in B in B s house. B promises to give A Rs. s house. B promises to give A Rs.
100 for his timely help. 100 for his timely help.
Answers to case.2 Answers to case.2
Yes. Yes. AA can recover the amount from can recover the amount from
BB in all the cases. in all the cases. [Sec.25(2)] [Sec.25(2)]
Case.3 Case.3
A owes B Rs.1,000 but the debt is A owes B Rs.1,000 but the debt is
barred by limitation. A gives a letter barred by limitation. A gives a letter
to B agreeing to pay him Rs 500 on to B agreeing to pay him Rs 500 on
account of the account of the debt.Is debt.Is this a valid this a valid
agreement? agreement?
Answer to Case.3 Answer to Case.3
Yes. Yes. [Sec.25(3)] [Sec.25(3)]
Case.4 Case.4
A, being a dire need of money, sells his new A, being a dire need of money, sells his new
car purchased two months ago at a cost of car purchased two months ago at a cost of
Rs.1,72,000 for Rs.11,000. Afterwards A seeks Rs.1,72,000 for Rs.11,000. Afterwards A seeks
to set aside the contract on the ground of to set aside the contract on the ground of
inadequacy of consideration. inadequacy of consideration.
Will he succeed? Will he succeed?
Answer to Case.4 Answer to Case.4
No. No.
Case.5 Case.5
AA,,BB, and , and C C enter in to a contract under which enter in to a contract under which
A promises both A promises both BB and and C C that if that if BB will dig will dig AA s s
garden, he ( garden, he (AA) will give Rs.50 to ) will give Rs.50 to C C. Can . Can C C
compel compel AA to pay the money on to pay the money on BB s digging s digging AA s s
garden according to the terms of the contract? garden according to the terms of the contract?
Give reasons. Give reasons.
Answer to Case.5 Answer to Case.5
Yes Yes. .
Case.6 Case.6
AA s Uncle in a sudden display of generosity s Uncle in a sudden display of generosity
promises him a watch as a gift on his next promises him a watch as a gift on his next
birthday. birthday.
If the uncle fails to give the watch, can If the uncle fails to give the watch, can AA do do
anything about it legally? anything about it legally?
Answer to Case.6 Answer to Case.6
No No. .
Case.7 Case.7
H who was badly in need of money offered to sell his H who was badly in need of money offered to sell his
piano worth rs.5,000 to C for rs.4,000. C refused to piano worth rs.5,000 to C for rs.4,000. C refused to
buy . H gradually lowered his price until rs.1000 was buy . H gradually lowered his price until rs.1000 was
reached, which C accepted. Before the piano was reached, which C accepted. Before the piano was
delivered, H received an offer of a larger sum from T, delivered, H received an offer of a larger sum from T,
and he refused to carry out the contract with C, and he refused to carry out the contract with C,
claiming that the consideration was inadequate. Is H claiming that the consideration was inadequate. Is H
liable to pay damages to C for failure to carry out his liable to pay damages to C for failure to carry out his
part of the contract? part of the contract?